Harvard has nearly resolved a tense issue in its fractious relationship with Watertown—but the University’s dealings with Cambridge might worsen as a result.

Within a week, Watertown and Harvard will finish a deal which both sides hail as a major step forward for a town whose relations with Harvard got off to a rough start last year.

According to Cambridge Mayor Michael A. Sullivan, the University has agreed to pay Watertown an annual total in excess of $3 million.

Last spring, Harvard purchased 30 acres in Watertown, provoking sharp criticism from town officials who said that losing the land from the town’s tax base would cripple Watertown financially.

Now, Watertown and Harvard have come to an agreement about the University’s financial obligation to the town which both sides describe as a mutually beneficial deal.

“This is the biggest decision that we’ve had to make,” said Watertown City Councillor Marilyn M. Petitto Devaney. “I’m very excited about the prospect of concluding this whole deal.”

Devaney said she expects Watertown residents to be satisfied with the terms of the agreement.

“I think the people of Watertown are going to be very pleased,” she said, but declined to comment on the specifics of the deal.

Sullivan told an audience of Harvard students last night that he was concerned about inequity between towns, as he said he knew that Harvard’s Payment in Lieu of Tax (PILOT) to Watertown would total an excess of $3 million dollars—while Cambridge currently receives nearly $1.6 million in PILOT.

Harvard’s Vice President for Government, Community and Public Affairs Alan J. Stone declined comment on the specific amount of the Watertown deal, though he said the agreement is nearly finished.

“I think if it happens in the way that we hope it will and think it will, it will be a win for both the community and for Harvard and I think that will be great,” Stone said.“It will give the community and Harvard each things they want and need and also the capacity to work together.”

But Cambridge politicians said they were less than pleased with the news that Watertown could be getting more than Cambridge gets from Harvard in PILOT.

“For [Harvard] to settle with Watertown, paying them more than Cambridge, is really a slap in the face,” City Councillor Timothy J. Toomey Jr. told an audience last night at an event sponsored by the Harvard College Democrats.

Stone said the University would gladly open discussion with Cambridge about their PILOT.

“We’re happy to negotiate with them,” Stone said. “We haven’t begun that discussion.”

Delaney said Watertown’s deal was nearly a year in the making.

“We just want to get this over and behind us,” she said.

—Staff writer Lauren R. Dorgan can be reached at dorgan@fas.harvard.edu.